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W A T E R E N E R C Y I RIVERSIDE PUBLIC UTILITIES WI& Board Memorandum P U B L I C U T I L I T I E S BOARD OF PUBLIC UTILITIES DATE: AUGUST 28, 2017 ITEM NO: 8 SUBJECT: ELECTRIC AND WATER UTILITY 5 -YEAR RATE PROPOSAL FY 2018-2022 AND PROPOSAL FOR ANNUAL CONSUMER PRICE INDEX ESCALATORS FOR FY 2023- 2027 ISSUES: Recommend that the City Council review the Electric and Water Utility 5 -year Rate Proposal developed to repair and replace aging and critical utility infrastructure, maintain public health and safety, maintain utility financial health, and improve customer service as per the City Council's direction on October 6, 2015, to develop a financial plan for the 10 -year Utility 2.0 Strategic Plan Option 3; review proposal for annual consumer price index escalators for FY 2023-2027; direct staff to conduct public outreach of this proposal in October and November 2017; and direct staff to return with a public hearing to the Board and final rate recommendation to the City Council in January and February 2018, respectively, with new rates effective April 2018. RECOMMENDATIONS: That the Board of Public Utilities recommends that the City Council: 1. Review the Electric and Water Utility 5 -year Rate Proposal (Utility Rate Proposal) for FY 2018-2022 developed to repair and replace aging and critical utility infrastructure, maintain public health and safety, maintain utility financial health, and improve customer service as per the City Council's direction on October 6, 2015 to develop a financial plan for the 10 -year Utility 2.0 Strategic Plan Option 3; 2. Review proposal for annual consumer price index escalators for FY 2023-2027; 3. Direct staff to conduct a citywide community outreach initiative of the Utility Rate Proposal in October and November 2017; and 4. Direct staff to return with a public hearing to the Board and final rate recommendation to the City Council, in January and February 2018, respectively, with new rates effective April 2018. BACKGROUND: The City Council last approved 5 -year and 4 -year water and electric utility rate increases in 2006 and 2007, which was about 10 years ago. The last rate increases from these plans were effected in 2010. RPU froze rates immediately after the Great Recession in July 2010, due to the severe economic downturn in the Inland Empire. Further, water rates remained unchanged through the worst drought in more than 125 years, unlike most other water agencies that were required to raise rates because of reduced demand. During the drought RPU was mandated by Governor Brown's executive orders to reduce water sales, even though RPU had sufficient water supplies. RPU sued State regulators and by the time the lawsuit was